Big Deal

Amazon.com’s $13.7 billion acquisition of Whole Foods is a dramatic statement about the value of retail real estate, observers say, but that does not mean the landmark transaction is all good news for Amazon’s brick-and-mortar competitors and their landlords.

For starters, the deal could intensify store closures and the general decline among grocery chains that lack resources to compete as their sector increasingly goes omnichannel, says Joseph McKeska, co-founder and president of Oak Brook, IL – based Elkhorn Real Estate Partners. “This is only going to accelerate the ongoing consolidation and shakeout in the grocery sector,” he said. That means shopping center landlords in particular will need to be even more thoughtful and analytical about the grocery chains in their portfolios, says McKeska, who in the past headed real estate operations for Southeastern Grocers and Supervalu. “You want to pick the horses that are going to be the winners,” he said.

The deal gives Amazon access to nearly 500 stores it could use as warehouses or showrooms – all in affluent markets with existing or prospective customers of its Amazon Prime or Amazon Fresh services (the latter is now available in about 20 cities). Amazon could use its Whole Foods stores for returns or pickups of online purchases both grocery and nongrocery, which could ramp up competitive pressures in U.S. retailing among a host of chains, McKeska notes.

These benefits are part of the reason a major real estate move by Amazon was hardly unexpected in the grocery sector, McKeska says. “I am not surprised, per se, and I don’t think many grocery executives were shocked either,” he said. “It has been clear that at some point Amazon was going to need to get into the brick-and-mortar business on the grocery side if it was going to have any chance of making a significant dent in terms of growing its market share.”

The potential reverberations are profound and could affect the e-commerce market, the price of food and nonfood products in the U.S. and the pace of automation in retail, according to Todd Maute, a partner at New York City-based CBX, a brand agency and retail consulting firm. “It will be very interesting to see what happens in these stores,” Maute said. “Are we going to see Amazon try to automate the checkout process, which they’re already testing at their Amazon Go store in Seattle? Will they bring in pickup and drop­off stations, Amazon lockers and the like? This really could be the jumping-off point, not just for grocery to go omni-channel in a major way, but also for some pretty big changes in how we shop brick-and­-mortar stores.”

Maute, whose focus includes private-label products and branding, says Amazon’s private-label products could easily show up on Whole Foods shelves. Amazon could also leverage its economies of scale to bring down prices at the notoriously expensive retailer, putting more pressure on discounters and other competing chains. “Walmart, Kroger and Publix are all racing to develop click-and-collect capabilities,” he said. “Now they’re staring down the barrel of going head­to-head with Amazon on both price and, even more daunting, convenience.” (Kroger Co.’s stock plummeted by 9 percent the day after the Amazon-Whole Foods announcement.)

Maute will also be paying close attention to how the Whole Foods deal affects the use of the voice-activated Amazon Echo device. “I can see Amazon giving you a significant discount if you start ordering your groceries by voice as you stand in the kitchen, ” he said. “That’s the holy grail of what some people are calling ‘v-commerce’ – that is, voice commerce.

Some are already calling for the Federal Trade Commission to put a stop to the deal on antitrust grounds, but McKeska is skeptical. Brick-and-mortar grocery is a new business for Amazon, so this is hardly Coke buying Pepsi, he notes. “Knowing how the FTC looks at these things,” McKeska said, “I would be very surprised if there was any issue.”